People see things in different ways, but most agree turbulent times are ahead. It is not likely the situation will improve under the current government policies. People are not helpless, and changes can improve our situation vastly.

Many expenses tug at the family budget and most are uncontrollable. We either raise our income, something getting much harder to do, or cut expenditures. Vehicle costs are a large part of most family’s income. New cars are outrageous and the costs of a used car are climbing quickly out of reach. Learning to prevent problems, is far more important than ever.

Debt, want and need

Experts agree that debt holds people back. It makes them far more susceptible to poor economies. Buying a new vehicle places people in debt or, takes funds with which to may pay down debt. This makes saving money difficult and without cash reserves, people are very vulnerable.

People often say that they need a new car. In reality, they may want a new car, but need transportation. Buying an older vehicle and maintaining it can help break the chain of debt. This makes funds available to retire debt and cut interest payments. Savings provide a cushion against the unexpected. Understanding depreciation and budgeting avoids crisis decision making.

Where many people are

When vehicles cost $15,000 and less, trading every 100,000 miles was common. Today the average car is double that and fancier models can easily top four-times that amount. Many people must drive vehicles far more than 200,000 miles. The effects of a lack of service are far more expensive as time passes. Just like with people, neglect of the past shows up in the future.

Repair costs start to rise or a major repair makes another vehicle an emergency. This occurs because few understand the costs of transportation.

Depreciation, the costs of transportation

If vehicles came with a coin slot and we paid per use, costs would be easier to see. Instead, we pay a large lump up front. We continue to pay out money, through the life of the vehicle, for maintenance and repairs. If we knew the total, we could divide it by the miles driven and calculate a cost per mile. The amount also needs to include fuel and insurance for the period.

Another real cost is depreciation. This is the reduction in value of our investment, over time. For instance, to buy a new vehicle, it may require $30,000. Trading the vehicle in, after three years, we pay more money. The difference is depreciation, or the amount our investment has lost. If a replacement is $30,000 and we get $15,000 trade-in, our depreciation is $15,000, the amount we must pay for a replacement.

Depreciation per year varies, depending on the make and model. It also gets much less over time. For example, it could be 25% in the first year, 15% in the second and 10% in the third. We have a calculator to help determine vehicle costs, including this figure. It also allows comparison to another vehicle.

A wiser approach to vehicle ownership

Manufacturers spend billions to convince people that they need new vehicles. In fact, people need transportation and much lower costs’ alternatives are available. Depreciation is worse in the first three years. They may price three-year-old vehicles at half the cost of new. If we invest 30% of the savings, for repair and maintenance, we can provide our own extended warranty.

For instance we buy a three-year-old car for $15,000 rather than a new one for $30,000. Drive this car for ten years, doing all maintenance and repair at a cost of $5,000. Costs of transportation are $20,000, divided by 120 months, or $167 per month. Buying and trading-in cars every three years cost $548 per month or $65,760.

Viewing costs over time

In the above example we act as our own warranty company. Better maintenance lowers repair costs and saves more money. We spread repair costs over time. We realize driving a year without a repair is not free, and we have simply defrayed costs. Drivers need to view repair cost over the life of the vehicle.

When is it time to replace?

Monthly payments end when we pay for a vehicle, but not monthly costs. The goal is to keep monthly spending as low as possible. Before spending $2400 on a large repair, consider if the vehicle is likely to go another year without repair. If so, the costs are $200 per month. This is well less than replacement per month. If the likelihood of another large repair is high, within a year, it is time to consider replacement. A general inspection of the vehicle is a good investment, if there is any doubt. Tracking costs per month and budgeting for repair avoids surprises, and saves a bundle.